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The Road to War (Part I: Trade)

‘Free’ Trade and the Sovereignty Squeeze | The Diplomat

‘Free’ Trade and the Sovereignty Squeeze
Mercantilism in trade agreement rules-setting makes weaker economies slaves to the interests of economic hegemons.

By Ji Xianbai
October 28, 2014

A piece of news recently became popular in China: Germany is now the world’s largest trade surplus “bogeyman,” thanks to its persistent adherence to mercantilist policies. Germany’s high trade surplus – the biggest ever recorded in German history – attained amidst a wobbly economic recovery in Europe reminds China that the latter is hardly alone in pursuing economic policies that prioritize national interest over global and regional considerations of economic efficiency and political stability.

The classic mercantilism, the one associated with the idea that the precious metals obtained through a favorable balance of foreign trade were essential to a powerful nation, may be historically obsolete. The core of the mercantilist view, namely that self-interested states maximize economic development by optimizing political control to strengthen national power, is very much alive and well. Indeed, the vitality of mercantilism as a state of mind may have infiltrated every corner of the international political economy. If one considers the essence of mercantilism through Robert Gilpin’s definition – the attempt of governments to manipulate economic arrangements in order to maximize their own interests – multiple examples immediately come to mind: Japan’s “economic totalitarianism” system in which the entire society was united in deterring foreign competition in the postwar period, China’s ascendance since 1980s through an export-led development mode underpinned by a deliberately undervalued currency, and Germany’s unprecedented trade surplus accrued from the stringent austerity imposed on its economy to sustain competitiveness in the aftermath of the euro crisis.

Compared to those national triumphs of classic mercantilism, there is a less visible showroom, but one in which mercantilism presents itself over and over again in the form of legal mercantilism. This would be free trade agreements (FTAs), negotiations of which are usually kept in the dark. In bilateral FTA negotiations, legal mercantilist governments endeavor to impose their own (or desirable) trade rules and economic policies on other sovereign countries, usually with the aid of a combination of economic immensity, political hegemony, and asymmetric trade dependence, to create a sort of “international best practice,” favorable trade rules, and legal gains that can be leveraged and multilateralized at a regional and/or global level. The “competitive liberalization” strategy aptly pursued by the U.S. since 2002 is one such legal mercantilist policy, which aims to create another “gold standard” in international trade standard setting to project U.S.-friendly economic policies all over the world. In short, the U.S. expects the trade policies of other nations to follow those of the U.S., in the same way that their currencies used to peg to the U.S. dollar.

The U.S.–Peru FTA (PTPA) marks the very first success of Washington’s attempts to subordinate other countries’ sovereignty to its own national interest by squeezing non-trade-related provisions into a bilateral trade liberalization agreement and overriding foreign national laws. To provide a level playing field for American companies, the PTPA lays out detailed measures that Peru is obliged to take to govern its forest sector. The Forest Annex of the PTPA requires Peru to set up an independent forestry oversight body and even enact new Forestry and Wildlife Laws to legalize key provisions of PTPA. The U.S.–Colombia FTA (CTPA)’s labor provisions represent an “even more blatant assault on another country’s sovereignty.” Meanwhile, Colombia was forced to agree to establish a dedicated labor ministry; endorse legislations outlawing interference in the exercise of labor rights; double the size of its labor inspectorate; and set up a phone hotline and an internet-based system to deal with labor complaints. Examples of similar provisions abound: Don’t forget that the U.S.-Panama FTA has “helped” revamp Panama’s tax policy on behalf of Panamanians.

In a similarly coercive fashion, the EU has never been shy of imposing its own will on other countries in trade. Last week, a November 2011 diplomatic cable between Ecuador’s then-ambassador in Brussels, Fernando Yepez Lasso, and the Ecuadorian vice minister for Foreign Relations, Kintto Lucas Lopez, was leaked. The confidential communication suggests that Ecuador was “bullied into a EU trade agreement.” Denouncing it as “biased,” Ecuador was convinced the agenda was set to prioritize the trade liberalization component of the agreement that was able to accrue immediate gains to the EU over two other pillars of the EU-Andean Association Agreement, namely, an economic cooperation agreement and a forum for political dialogue, which were of more long-term significance to Andean states. So Ecuador pulled out of the talks in 2009. To compel Ecuador to return to the negotiating table, the EU resorted to stark threats of economic isolation as the Ambassador admitted in the cable that “[t]he proposal of the European Commission, which includes criteria that could exclude Ecuador from the preferences framework [...], is an element of pressure on Ecuador to join the free trade agreement.” Afraid of being left out and sustaining a $1.2 billion loss to its economy if trade ties with EU was disconnected, the Ecuador government crumbled and finally inked the agreement on July 17. This painful experience has taught Ecuador a lesson that what governs trade negotiations is the law of the jungle and prompted Ecuadorian President Rafael Correa to comment in an interview after signing the FTA that free trade “is the most anti-historical thing that exists; almost no developed country used it.”

In the rule making of regional and mega-FTAs, the U.S. likewise is not afraid to pressure other negotiating parties to move their stance closer to Washington’s. Although the multilateral nature of mega-FTA talks ensures that the U.S. may not be able to have it all its own way – for instance, the U.S. failed to pressure Brazil to agree to excessive concessions under the framework of the Free Trade Agreement of the Americas (FTAA) in the 1990s – mega-FTAs, once formalized, will curb potential adversaries’ dexterity in pursuing unfriendly or incompatible economic policies provided they are lured by a potential membership.

A case in point is the Trans-Pacific Partnership (TPP). Widely seen as an “anyone but China club” in the Pacific Rim as a politically constructed economic alliance to counterbalance China’s growing economic clout in the region, the TPP as a strategic legal undertaking to socialize China is rather less appreciated. TPP envisions locking-in economic reform efforts in China and encouraging it to further integrate into the world economy. As a trading bloc accounting for 40 percent of world trade with four out of China’s top ten trading partners potentially on board, the TPP represents a potent economic magnet for China. However, by explicitly claiming the TPP to be a 21st century trade agreement with a high bar in areas such as intellectual property, labor and environment protection, government procurement, e-commerce, and state-owned enterprises – all areas where China has a tarnished track record – the U.S. is sending a clear signal to Beijing: If China hopes to join the TPP one day, it will have to abandon its mercantilist policies and play by U.S. trade rules.

From China’s perspective, even if it wants to join the TPP, it will face a set of established TPP rules as a fait accompli, a formidable and well-articulated legal fortress guarded by all the savvy signatories. There is no possibility that the TPP will cater to the special needs of China by creating a set of exceptions, since the China-specific rules will undermine the initial strategic objective of using rules to contain China. Indeed, if new exceptions were to be created for China, it makes no sense whatsoever for existing TPP members to negotiate stringent rules in the first place. U.S. Trade Representative Michael Froman confirmed this point by asserting that “[o]ur goal is to have high standards. It’s not worth it to have another country join just to lower the standard.” As such, China will not seek TPP membership since it has no control over the process and outcome of TPP rule-making. It will have to pay a high premium for late TPP accession as a rule-taker and not a rule-maker. Given the maturity of TPP negotiations after twenty-one rounds of talks, the likelihood of Chinese participation is minimal.

China is well aware that it is hard to win a game when your opponent gets to write the rules; therefore, it’s highly likely that China will not play the game of TPP at all (although a high-ranking Chinese official did recently make positive noises about TPP membership). Washington’s penchant competitive legalization will also galvanize China to join the global trade legalization race, to fill the legal vacuum in those areas where no multilateral rules exist. Discarding its longstanding favoring of voluntary codes of conduct over formally binding rules in foreign economic relations, China has become more devoted to the Regional Comprehensive Economic Partnership (RCEP), a similar but much less ambitious trading bloc being negotiated among ASEAN and its six ASEAN+1 FTA partners. China sees RCEP as a platform to multilateralize China-friendly rules. A more plausible scenario for the legal rivalry is that these two gargantuan and largely self-sufficient trade blocs will write different trade rules at the expense of each other, eventually giving rise to the fragmented trade structure outlined by Michael Hudson in his book Global Fracture.

FTAs will never be free. The irony is encapsulated in the titles of the mega-FTA, Trans-Pacific Partnership, Regional Comprehensive Economic Partnership, and Transatlantic Investment and Trade Partnership, which all very noticeably lack the word “free.” FTAs pose an enormous threat to the ability of economically weaker governments to regulate their own economies, and the give economically stronger economies undue control over the domestic affairs of other sovereign states, making the latter slaves to the national interests of those economic hegemons. To paraphrase Jagdish Bhagwati, if you want to join a golf club, you need to play golf. But you shouldn’t have to go to church and sing hymns with the other club members.

Ji Xianbai is PhD candidate at S.Rajaratnam School of International Studies (RSIS), Nanyang Technological University, Singapore. He holds the prestigious Nanyang President’s Graduate Scholarship (NPGS), and is also Associate Fellow at European Union Centre in Singapore.
 
Interesting divergence between Taiwan's and SK's trade relationship with China. I wonder if this will manifest itself politically as well (Taiwan gravitating further into China's orbit, SK moving away). Or perhaps this is a short-term phenomenon, and we shouldn't read too much into it.

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South Korea’s Export Weakness Puzzles Economists - Korea Real Time - WSJ

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  • October 29, 2014, 12:51 AM KST
South Korea’s Export Weakness Puzzles Economists
ByTom Wright
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South Korea’s exports grow 2.9% on year in the first nine months of 2014.
Getty Images
South Korea’s exports to China have underperformed Taiwan’s this year, leaving economists scratching their heads.

Both countries exports to China are similar: electronics, steel and chemical exports. Both send around a third of their total overseas shipments to China.

And a large portion of both nations’ sales to China are intermediate goods that are processed or assembled there before being re-exported to the U.S. As the U.S. economic recovery deepens, so these countries exports to China should benefit.

But Taiwan’s exports are doing much better, growing 3.6% on year in the first nine months of 2014, versus 2.9% for South Korea.

That’s a sizeable difference that’s elicited consternation among South Korean officials and sparked debate among economists.

One theory doing the rounds is that Taiwan uses China as a production base to export to the U.S. and elsewhere, while South Korea is more dependent on selling products to China’s consumers.

That’s left South Korean companies increasingly vulnerable to increased competition from local Chinese brands in the domestic market, Barclays says. Samsung Electronics Co. has been particularly hit by this trend, with handset sales in China under pressure, the bank adds.

Taiwan’s exports, by contrast, are bolstered by the sales of parts for Apple Inc.’s iPhone, which are assembled in China and shipped to the U.S. and elsewhere.

The situation has sparked concern among Korean officials, some of whom fear China is moving fast up the value chain – in effect eating South Korea’s lunch.

Others don’t find this explanation convincing.

South Korea remains much more advanced than China, says Ronald Man, an economist with HSBC in Hong Kong. He believes China is still five years away from becoming a threat in higher-end electronics products.

Goohoon Kwon, an economist at Goldman Sachs, discounts the theory that Taiwan is more exposed to U.S. demand. About a fifth of final demand for both nations’ exports comes from the U.S., he estimates.

Mr. Kwon has a different explanation for the diverging export trend: won strength. The Korean currency has appreciated 5% against Taiwan’s dollar in the past year.

South Korean authorities have drawn criticism from the International Monetary Fund for regularly intervening to weaken the won.

Mr. Kwon’s analysis shows why the country is so sensitive to exchange rates. On the plus side: recent U.S. dollar strength against the won implies “a modest yet robust upside for Korean exports.”

And there are other suggestions for the current state of affairs. Johanna Chua at Citibank believes that China might be moving up the value chain. But she also notes that South Korean-owned factories are shifting out of China amid rising costs, opting for cheaper bases in Southeast Asia.

Such shifting investment would reduce South Korea’s exports to China.

Whatever the reasons, South Koreans large industrial conglomerates, known as “chaebol,” don’t appear like giving up on China anytime soon.

Korean firms largely see China as an extension of their domestic market. With 50 million people in Korea and 1.3 billion in China – coupled with warm cultural and political ties between the nations – that’s little surprise.

China and South Korea hope to conclude a free-trade pact by the end of 2014, a sign both sides see their role in Asia’s supply chain for electronics and other products as complementary, says Mr. Man at HSBC.

Gavekal Dragonomics, a Beijing-based research house, points out that South Korean direct investment in China was robust in the first half of 2014, overtaking Japan, which itself has rising political tensions with Beijing.
 
Here's another great example of how trade may eventually manifest itself politically. TTIP is driving a wedge between Europe and Turkey (and Turkey and the US, to some degree).

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Turkey should start alternative trade talks with US, says World Bank envoy - ECONOMICS

Turkey should start alternative trade talks with US, says World Bank envoy
BERLIN

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Raiser attended a panel held by the Turkish Industry and Business Association (TÜSİAD). AA Photo

The Turkey director of the World Bank, Martin Raiser, has advised Turkey to engage in parallel negotiations with the U.S. in order to prevent adverse effects of the Transatlantic Trade and Investment Partnership (TTIP).

Washington has so far not made any moves to initiate such a process, Raiser said late on Oct. 27, adding that it was down to Turkey to take the first step.

“The planned trade deal between the U.S. and the EU will harm Turkey, as Turkey is not a member of the EU, but a member of the Customs Union. There is no easy answer to solve this problem. We are suggesting that Turkey starts parallel negotiations with the U.S. to make a similar trade deal with it,” he said at a panel held by the Turkish Industry and Business Association (TÜSİAD), titled “20 Years Later: Deepening Turkey’s Customs Union on Perspectives of the Transatlantic Trade and Investment Partnership.”

“However, I am not sure the U.S. government is currently in a position to offer such negotiations to Turkey. If such negotiations are not possible for Turkey to start with the U.S., then Turkey should concentrate on making the TTIP open to third parties, including Turkey. And the criteria to join the deal must be defined by the U.S. and the EU clearly at the very beginning,” he added.

A transatlantic free trade deal currently being negotiated between the EU and the U.S. could cause the Turkish economy to lose $20 billion if Turkey is left out of the final agreement, as shown by an analysis prepared by the Brookings Institute and TÜSİAD in 2013.

Turkish officials argue that potential future free trade agreements signed by the EU with other countries, such as the U.S., would effectively open Turkey’s market to exports from these countries because Ankara is a signatory of the Customs Union deal.

“Turkey is not a part of the decision-making process in the existing system of the Customs Union. Turkey could therefore face competitive pressures from several low-cost third-party countries with which the EU has separate trade deals,” Arzuhan Doğan Yalçındağ, the Doğan TV Holding Chairwoman and former head of TÜSİAD said during the panel.

She added that Turkey should be able to participate in the decision making processes so as to enable the Customs Union between the EU and Turkey to be able to function effectively and fairly.

“Turkey gives great importance to the TTIP. If Turkey is not included in this process, we fear our interests would be harmed. In this vein, the EU can now declare the opening of the Transatlantic market to its long-standing members of the single market, Turkey, Norway and Switzerland, in a special article in the final agreement,” she noted.

During her visit to Ankara earlier this month, U.S. Secretary of Commerce Penny Pritzker said that despite the good trade relations between Turkey and the U.S., it is not the right time to begin talks about including Turkey in the TTIP process with Europe.

“Let me be clear about the TTIP. Turkey and the U.S. are great allies and nothing is going to change that. We have a mechanism called the High Level Committee, which we use to keep Turkey abreast of the TTIP conversations, but engaging further with the TTIP at this time, before the necessary economic reforms are taken, doesn’t make sense for either Turkey or the U.S.,” Pritzker said during an interview on Oct. 2.
October/28/2014
 
An economic bloc based on American-driven standards, or one based on Chinese-driven standards? The battle for control of Asia's destiny continues.

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China’s Push for an Asia-Pacific Free Trade Agreement | The Diplomat

China's Push for an Asia-Pacific Free Trade Agreement
China hopes the FTAAP will overshadow less inclusive alternatives, like the Trans-Pacific Partnership.

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By Shannon Tiezzi
October 30, 2014

China’s foreign minister said on Wednesday that he expects November’s APEC summit to take up the issue of creating an Asia-Pacific Free Trade Area (also known as a Free Trade Area of the Asia-Pacific, or FTAAP). FTAAP would mesh with China’s strategy of promoting regional integration – and would provide an alternative to the U.S.-led Trans-Pacific Partnership (TPP) talks, which currently excludes China.

Foreign Minister Wang Yi made his remarks at the Lanting Forum, which was billed by China’s Foreign Ministry as “a preview of the theme, agenda, and outcomes of the 22th APEC Economics Leaders’ Meeting.”According to Xinhua,Wang said that this November’s APEC summit will see progress on an Asia-Pacific Free Trade Area. Wang hopes that APEC members will send a “clear message” on regional economic integration by advancing the FTAAP.

According to China’s vision, this massive FTA would effectively overrule the piecemeal free trade agreements that currently exist (or are under negotiation) among Asia-Pacific economies. The FTAAP “will help to integrate regional bilateral and multilateral cooperation mechanisms and reduce the risk of overlap and fragmentation,”Xinhua paraphrased Wang as saying. Back in May, when a Chinese Ministry of Commerce official urged “quick action” on an Asia-Pacific FTA, he argued that this larger FTA “will solve the problems caused by barriers between different FTAs, such as distinct rules and requirements.”

The FTAAP would thus provide an attractive alternative to the TPP, which is its current form would exclude China, the region’s largest economy. Given the current stalemate over TPP negotiations (something my colleague Clint covered in more detail over on the Tokyo Report), Beijing may be sensing an opportunity to forestall TPP by pushing forward with a larger, more integrated vision for regional trade.

Some in APEC, meanwhile, are taking the opposite viewpoint, wondering if FTAAP is necessary given the multitude of other trade deals already under discussion. According to the South China Morning Post, APEC secretariat executive director Alan Bollard said that it might be too complicated to work on FTAAP alongside all the other trade negotiations already in progress. “None of the economies want to start negotiating on the FTAAP. It is far too early to do that,” Bollard said.

The idea for FTAAP has been around for nearly a decade – for example, in 2006, C. Fred Bergsten of the Peterson Institute for International Economic argued that an Asia-Pacific FTA “is the next step forward for APEC.” Despite this, there’s been little progress to date as countries has pursued smaller multilateral or simply bilateral agreements. Bollard’s hesitancy indicates China faces an uphill battle to overcome this inertia.

Still, China is pushing forward with the idea. SCMP reports that China is calling for a feasibility study on the FTAAP, which is generally the first formal step in crafting an FTA. Bollard downplayed expectations, saying that “we have not yet agreed on the study … We are not at all clear about what it means.”

From Beijing’s perspective, the FTAAP means an interconnected Asia-Pacific region – with China, as the region’s (and soon to be the world’s) largest economy, naturally at the center. China’s other high-profile plans for economic integration, the Silk Road Economic Belt and the Maritime Silk Road, echo the idea that the region’s economies should be more integrated. Both those initiatives also focus on literal connectivity – transportation and infrastructure to connect Asia-Pacific states. China also intends to emphasize this at APEC by pushing for a “blueprint” for interconnectivity in the Asia-Pacific in both transportation (highways, railways, air traffic) and regulations.

By taking the leading role in pushing for economic integration and interconnectivity, China can also position itself as the leader of this as yet hypothetical Asian community. In his remarks Wednesday, Wang Yi emphasized that China and the Asia-Pacific are part of a “community of shared destiny,” repeating Beijing’s favorite way of conceptualizing the region.

Under this concept, China stresses that its success is the main driver for regional success. China has contributed more than 50 percent of economic growth in Asia,” Wang pointed out, noting that each percentage point of economic growth in China lifts the economy of the region by 0.3 percent. Wang also stressed that “China has been working on playing a constructive role in regional affairs.” As “a member of the Asia-Pacific family,” Wang said, China accepts the responsibility to promote regional prosperity and stability.

Last year, China Power blogger Jin Kai noted that this formulation was China’s response to the U.S. “rebalance to Asia.” Through its various initiatives, from economic proposals like the Silk Road Economic Belt to FTAPP, to political groupings like the Shanghai Cooperation Organization and the Conference on Interaction and Confidence-Building Measures in Asia (CICA), China is attempting to establish its leadership bona fides in the Asia-Pacific region. Once China is established as a regional leader, both economically and politically, there will be no further need for the U.S. in the region — or so Beijing hopes.
 
http://online.wsj.com/articles/u-s-blocks-china-efforts-to-promote-asia-trade-pact-1414965150

U.S. Blocks China Efforts to Promote Asia Trade Pact
Tussle Involves Regional Influence, Billions of Dollars in Trade

By BOB DAVIS
Nov. 2, 2014 4:52 p.m. ET


BEIJING—The U.S. has blocked China’s efforts to use a leaders’ summit to begin negotiations on a free-trade zone spanning the Pacific, people close to the matter said, as the world’s two largest economies tussle over influence in the region and billions of dollars in trade.

China, the host of this year’s Asia-Pacific Economic Cooperation forum on Nov. 10-11, has sought to highlight its expanding international role by pressing for a pact known as the Free Trade Area of the Asia Pacific.

Beijing’s free-trade zone has been on the agenda of APEC for years—and was initially pushed by the U.S.—but has been relegated to the back burner as the U.S. has poured its efforts into the Trans-Pacific Partnership, a trade pact it is negotiating with 11 nations that include Japan but not China.

For Beijing, the FTAAP would offer a way to ensure that it continues to get preferential access to some of its largest trading partners. A TPP deal would cost China about $100 billion a year in lost exports as the partners trade more among themselves and less with China, according to an estimate by the Peterson Institute for International Economics, in Washington.

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“China wanted to reinvigorate” FTAAP, said Alan Bollard, executive director of APEC, an association of 21 economies including the U.S., China, Russia and Japan, whose leaders meet annually and whose decisions are taken by consensus. The APEC leaders’ summit next week will be the first major international conference held in Beijing since Xi Jinpingtook power as Communist Party chief.

Under U.S. pressure, Beijing dropped two provisions from the draft of an APEC communiqué to be released at the end of the leaders’ session, negotiators said. The statement no longer calls for an FTAAP “feasibility study”—trade lingo for starting negotiations—and has no target date to finish the deal. China wanted 2025 as an end date.

A U.S. Trade Representative spokesman said the U.S. and China are working on a “constructive proposal” for how APEC can further FTAAP under what the spokesman called a “long-term vision” that builds on other trade deals.

‘“The Chinese government doesn’t just want to wait [for the Americans]. China wants to do something else.”’

—Lu Feng, a Beijing University economist

Starting work on it now, Washington fears, would hobble its efforts to complete the TPP, which has stalled on several fronts, such as how to handle state-owned enterprises or Japan’s agricultural subsidies.

“The U.S. is afraid that setting up a parallel process for different negotiations would deflect attention from TPP,” said Fred Bergsten, a senior fellow at the Peterson Institute. “Plus, if Congress thought China was getting into [negotiations] with the U.S., it would raise additional problems.”

Lu Feng, a Beijing University economist, said “there is a game going on between the two countries.” The U.S. pushes forward its proposals. But “the Chinese government doesn’t just want to wait” for the Americans, Mr. Lu said. “China wants to do something else.”

At times, the trade discussions have gotten heated. During an August negotiating session in Beijing, a U.S. delegate said that “my minister has made it abundantly clear” that the U.S. won’t agree to language that would signal the start of FTAAP negotiations, according to three officials familiar with the discussions. Still, China continued to press for the provisions.

After an Oct. 14 Kyodo News Service report that China’s FTAAP language was still in the draft communiqué caused an uproar in APEC circles, China relented, according to officials involved in the talks. Beijing dropped the controversial language in a draft it circulated to APEC members on Oct. 16 and is no longer pushing for it, the officials said.

The FTAAP won’t be absent from the talks: APEC negotiators will work over the coming week to further define it. Members have agreed to examine how other trade deals in the region could affect it, said Mr. Bollard, the APEC executive director.

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The U.S. has blocked China's attempt to use the Asia-Pacific Economic Cooperation forum to start negotiations on a pan-Pacific zone for free trade. ZUMA PRESS
Chinese Foreign Minister Wang Yi said in a speech on Thursday that the APEC talks would boost FTAAP by helping to consolidate various trade pacts. China’s APEC office and commerce ministry didn’t respond to requests for comment.

The scuffle over trade policy is the second recent example of the U.S. challenging Chinese international economic ambitions. The U.S. has also lobbied hard against Chinese plans for a new infrastructure development bank, said Western economic officials, including during teleconferences of the Group of Seven major industrial powers. The U.S. argued that a Chinese-dominated Asia Infrastructure Investment Bank could undercut standards used by other development banks, and might work primarily to boost Chinese firms.Washington circulated a June report by the Chinese Academy of Social Sciences that said the bank would help Chinese infrastructure companies plagued by excess capacity.

The bank is still being launched but without European and some major Asian countries.

Mr. Bergsten of the Peterson Institute said U.S. tactics are shortsighted. It should instead join the infrastructure bank, he said, and work from the inside to influence its direction.

“We keep saying, ‘We want China to show leadership,’ ” he said. “But when they take the lead, we say, ‘No, it doesn’t meet our tests.’ ”

US Pressures China to Kill Asia-Pacific Free Trade Agreement Talks | The Diplomat

US Pressures China to Kill Asia-Pacific Free Trade Agreement Talks
The U.S. is reportedly opposing discussion of FTAAP at the upcoming APEC summit.

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By Shannon Tiezzi
November 04, 2014

Last week, in the official preview of the APEC summit given by China’s foreign minister, Wang Yi noted thatChina wants forward progress on the Asia-Pacific Free Trade Area (FTAAP). However, a recent report from theWall Street Journalindicates that the U.S. is trying to shut down those discussions.

As the WSJ notes, the idea of FTAAP has been around for years. The U.S. initially supported the idea, but recently the Obama administration has shifted its focus to the Trans-Pacific Partnership (TPP), a “high standard” trade agreement that would include 12 countries on both sides of the Pacific – Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the U.S., and Vietnam – while excluding China. The Obama administration places a heavy emphasis on the TPP as the economic pillar of its “rebalance to Asia,” and apparently is not keen to see momentum diluted by the introduction of a new trade arrangement.

The Wall Street Journal reports that the U.S. pressured Beijing to drop two provisions dealing with FTAAP from the draft APEC communique. One provision called for APEC to begin a feasibility study for FTAAP, which would be the first formal step in negotiating the new FTA. The other provision set a target date of 2025 to close the deal. According to the Wall Street Journal, both provisions were removed from the draft after the U.S. protested.

According to estimates from the Peterson Institute of International Economics cited by the WSJ, FTAAP would represent a “win-win” for the U.S. and China – although China would “win” far more. PIIE estimates that, by 2025, the FTAAP would help the U.S. gain about $626 billion in exports, while China would gain a whopping $1.6 trillion. Under the TPP arrangement, the U.S. would gain far less in exports (about $191 billion) but China would actually stand to lose roughly $100 billion in exports as the TPP nations would shift their trade focus to other TPP member economies.

From a Chinese perspective, then, the U.S. move to block FTAAP smacks of containment. When Chinese analysts complain of a “Cold War” or “zero sum” mentality, this is exactly the sort of political calculation there are talking about: Washington would rather minimize its own gains to ensure maximum Chinese losses. Plus, U.S. pressure to kill FTAAP mirrors a similar attempt by Washington to persuade its allies and partners not to sign on to China’s Asian Infrastructure Investment Bank. To Beijing, it certainly looks like Washington is out to block any regional economic initiatives that stem from China.

From a U.S. perspective, though, this decision is simply pragmatic. The TPP negotiations are close to being finalized, but recent deadlocks have stalled progress. Under these circumstances, the Obama administration likely feels that introducing a new, even larger trade proposal would sap what little momentum remains for the TPP. FTAAP negotiations would be a long, messy process (as seen by China’s original target date of finalizing negotiations by 2025) and may ultimately end in failure given the number of countries and divergent interests involved.

Plus, the Obama administration wants to use TPP to ensure that other countries meet the United States’ “high standards” in defining free markets and ensuring intellectual property rights. A parallel agreement that is both more inclusive and less stringent in its requirements would kill any impetus for regional governments to strive to meet those standards.

When it comes to regional trade arrangements, the U.S. and China are simply not on the same page. If the U.S. takes FTAAP off the table, China may simply return to emphasizing the Regional Comprehensive Economic Partnership (RCEP), a proposed free trade bloc that would include the ASEAN member states plus Australia, China, India, Japan, South Korea, and New Zealand (with the U.S. on the outside looking in).

There is a glimmer of hope for economic cooperation on the bilateral level, however. As Elizabeth Economynoted in her APEC preview, in a best case scenario the U.S. and China can begin to make some real progress on a bilateral investment treaty during Obama and Xi’s bilateral meetings.


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U.S. Trade Gap with China, 80% of Trade Deficit, Hits Historic High - Real Time Economics - WSJ

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  • November 4, 2014, 10:30 AM ET
U.S. Trade Gap with China, 80% of Trade Deficit, Hits Historic High
ByIan Talley
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The trade deficit data’s likely to revive U.S. lawmaker calls to penalize Beijing for keeping a lid on the value of its currency.
Agence France-Presse/Getty Images
Americans bought record amounts of goods from China in September, pushing the trade gap between the world’s largest economies to a historic high, according to U.S. Commerce Department datapublished Tuesday.

September imports from the Asian giant hit $44.9 billion, up nearly 13% on the month, as the U.S. economy gained steam.

The import and trade gap numbers—unadjusted for inflation and exchange rates–are the largest since Commerce started collecting trade data with China in the early 1970s.

Most of the $5 billion increase in imports was fueled by a $3 billion surge in buying of cell phones. In September, Apple released the iPhone 6 and 6 Plus, both of which are assembled in China.

Exports to China fell 3% on the month to $9.3 billion as China’s economy showed more signs of slowing.

At $35.6 billion, the trade gap with China represents more than 80% of the total U.S. trade deficit of $43.0 billion.

The data’s likely to revive U.S. lawmaker calls to penalize Beijing for keeping a lid on the value of its currency. U.S. manufacturers complain the policy gives Chinese companies an unfair advantage, especially as the value of the dollar appreciates.

Although the U.S. Treasury Department has praised China’s gradual appreciation of the yuan in recent years, it said last month that the currency still remains “significantly undervalued.” Beijing’s currency intervention in the last year raised questions about the government’s commitment to move toward a fully market-determined exchange rate.

China’s growth rate is falling amid a weaker global outlook and as some of its economic overhauls weigh on output. Beijing has appreciated the yuan nearly 15% since 2010, accounting for inflation, but restarted exchange rate interventions late last year amid slowing growth prospects.

In April, the administration criticized China’s yuan depreciation as an “unprecedented” currency intervention, renewing long-running exchange-rate frictions. But after high-level talks in Beijing over the summer, Treasury officials said Chinese officials committed to reducing currency intervention.

September’s figures likely represent a combination of the strengthening dollar, which allows Americans to buy more international goods with the same amount, stronger U.S. demand as the recovery gains traction, Beijing’s yuan policy and weakening Chinese consumption.
 
‘Turkey may suspend customs deal with EU’ - ECONOMICS

‘Turkey may suspend customs deal with EU’
Deniz ZeyrekOSLO

Turkey may freeze its customs union deal with the EU if the planned trade deal between the US and EU does not cover all Customs Union members, including Turkey, says the European Union Minister

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'If U.S. goods enter the Turkish market with zero customs, we may lose 3-4 percent of our GDP,' Turkey's EU Minister Volkan Bozkır has said.. AFP Photo

Turkey is planning to suspend its Customs Union deal with the EU if the planned Transatlantic Trade and Investment Partnership (TTIP) does not include an article emphasizing the deal to be applicable for all Customs Union members, Turkish European Union Minister Volkan Bozkır has said.

“The planned trade deal between the U.S. and EU may cost $3 billion to Turkey. We cannot give the advantages of the Customs Union deal to all countries with which the EU signs such agreements, even if there is not any legal framework,” he said during his two-day Oslo visit.

“Norway also made a special economic deal with the EU even though it is not a member. The planned TTIP will also have a negative impact on Norway,” he said.

‘We just want one additional article’

“When Turkey made the deal with the EU in 1995, no article was put saying the agreements that the EU signs with other countries will not be applicable for Turkey. Such countries, therefore, export to Turkey with zero customs, as they have a free trade deal with the EU, but not with Turkey. If Turkey signs a free trade deal with those countries, it loses too much,” Bozkır added.

The planned trade deal between the U.S. and the EU will create massive losses for Turkey, he also said.

“We just want them to put an article in the deal, saying it ‘will be applicable for all Customs Union members automatically.’ Our trade volume with the EU has exceeded 150 billion euros. This really matters for us,” he said.

New stage in customs deal

Bozkır noted that the Customs Deal was now brought to a new stage in accordance with the latest World Bank reports so as to cover services, agricultural and public sectors.

“However, Turkey may need to suspend the deal if Turkey is not protected,” he noted.

“It is not possible for Turkey to open its market to the U.S. with zero customs. If U.S. goods enter the Turkish market with zero customs, we may lose 3-4 percent of our GDP, amounting to some $2.5-3 billion of trade loss ... We have been bound to the Customs Deal for years, so the EU should show the same sensitivity to our interests as we have done [to theirs],” Bozkır said.

“We need to reach an agreement in technical matters. Even if we do not suspend our Customs Union deal, we may not apply the deal’s advantages to the countries with which the European Union has a separate trade agreement,” Minister Bozkır added.
November/05/2014
 

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